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Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.


Illustration of a check being deposited into a bank. Summer 2004

Checks and Balances: New Rules, New Strategies for Bank Customers in the 21st Century
Changes are coming that will make it more important than ever to actively manage your checking account to avoid costly mistakes. This is not your father's checking account.

How often do you visit or have some contact with your bank? Chances are you'd say it's only once in a while and certainly not every day. But if you think about it, you probably do have dealings with your bank almost every day through your checking account.

Consider how often you write checks, make deposits (including direct deposits), use your ATM or debit card or make automated payments from your checking account, and you'll be reminded about how much you depend on these services from your bank. According to the Federal Reserve System, Americans write about 40 billion checks a year. In addition, electronic payments from checking accounts – using a debit card (to deduct payments directly from your bank account), online banking (to pay bills, move money or conduct other transactions using your computer) or other automated services – already outnumber paper checks as a payment of choice (see Electronic Payments Surge: How and Why).

And while consumers access their checking accounts all the time, we know from the many phone calls and letters we receive that people often have questions or concerns about their checking accounts, including how to resolve errors, avoid bouncing checks, keep fees low and protect against fraud.

Especially important: More changes will be coming as a result of "Check 21," short for the Check Clearing for the 21st Century Act. This law, which takes effect on October 28, 2004, will allow financial institutions to process "substitute checks," high-quality paper reproductions of both sides of original checks. Each substitute check will be created from an electronic image of an original paper check. Over time, Check 21 will make check processing faster, and that has real implications for check writers and check depositors. Example: If you currently get your original cancelled checks back with your monthly statement, in the future you may get substitute checks instead.

Given these changes, FDIC Consumer News offers the following tips and information about what to look for... and what to look out for... when choosing and using a checking account.

1. It's more important than ever to avoid bouncing checks. A check deposited in a bank generally travels by airplane and truck until it reaches the paying bank, typically about one or two days later. As a result of Check 21, more checks will be processed electronically... and faster. That means you need to have enough money in your account when you write a check or run the risk of having checks bounce.

While it's always our advice to have enough money in your account before you write a check, we realize that some people don't always do that – they'll write a check on the 28th of the month expecting their paycheck to be deposited on the 30th of the month, just in time to cover that check. "But if the checks clear sooner as a result of Check 21," says William Henley, Jr., an FDIC electronic banking specialist, "there is a greater risk that a check will bounce if sufficient funds are not in your account when the check is written."

As a result of Check 21, more checks will be processed electronically... and faster. That means you need to have enough money in your account when you write a check or run the risk of having checks bounce.
And a bounced check can be costly, with fees typically in the range of $15 to $30 per check.

What can you do to avoid bounced checks? Janet Kincaid, FDIC Senior Consumer Affairs Officer, says the first step is to keep your checkbook up to date. Be sure to deduct ATM withdrawals, bank fees and debit card purchases. Compare your checkbook with your monthly statement. Do not rely on your ATM receipt for balance information because it may not reflect outstanding checks or debit card transactions.

"If this is a joint account, make sure you know the dollar amount of each check, ATM withdrawal or debit card transaction that the other person is making, so you don't overdraw the account inadvertently," Kincaid says. "It's hard enough keeping track of things when one person is using the account."

Also, carefully consider the pros and cons of signing up for an overdraft line of credit, which means the bank will automatically cover checks you write (up to an agreed amount) even if you don't have enough funds in the account. You also should be aware that some banks, at their discretion and usually for a fee, may pay overdrafts under certain conditions even if the customer hasn't signed up for a particular program.

These and other overdraft services – and their costs – can vary significantly from bank to bank. "It's really important to remember that this service is essentially a loan so there can be interest charges or other fees," says Kincaid. Also, if you do not pay the overdraft and the bank closes the account, you most likely will have difficulty opening a bank account elsewhere.


The potential for faster check processing as a result of Check 21 has other implications for check writers. One is that you may have less time to place a "stop payment" on a check you've written.

2. Expect to get substitute checks from your bank as proof of payment instead of original cancelled checks. For many years, banking institutions have "truncated" checks for some customers. This means the institutions do not return cancelled checks in monthly statements. Instead, they keep original checks for a short period and send statements showing images of cancelled checks. Or, some banks only list check transactions on monthly statements and don't routinely send cancelled checks or images. Now, Check 21 is expected to reduce the instances in which original checks are returned with statements. Here's what's happening:

As before, if you write a check to someone who is not an account holder at your bank, your original check will be deposited at another institution. The check then travels to your bank for payment. But when Check 21 takes effect, the bank where the check is deposited will have two choices. Option one is to return the original check to your bank, as was done in the past. The second option, under Check 21, will be to create an electronic image of the check, produce a substitute check and send it to your bank. This second option means your original cancelled check is no longer available to you.

"Before Check 21, it was your bank that decided whether to return all your original cancelled checks with your statement," says Henley. "Soon your bank may not have the option of returning all your original cancelled checks, even if it wants to."

What if you must prove a disputed payment and your bank has given you a substitute cancelled check, not your original cancelled check? As long as the substitute check meets Check 21's standards, legally it would serve as proof of payment. And what if a bank's substitute check falls short of those standards? FDIC attorney Michelle Borzillo says that "Check 21 provides warranties and remedies to protect parties to the transaction."

Note: Banks have been providing images of checks for decades to millions of customers who do not receive original checks. These images often are accepted as proof of payment by the IRS, courts and other parties provided they meet certain requirements.

3. Protect against check fraud, which is getting increasingly sophisticated. Bank security procedures cannot stop all frauds, which may involve printing or altering checks or obtaining account numbers used to arrange for "payments" from accounts. You can help by promptly reviewing your bank statement each month and immediately reporting any unauthorized transactions. Or, better yet, monitor your account more regularly online or through telephone banking programs at your bank. Timely notification of a problem can limit your potential liability (see Key Laws Governing Checking Accounts), stop a fraud or assist in an investigation.

Key Laws Governing Checking Accounts
Also protect your account information. For example, only give your checking account number, including the routing numbers at the bottom of your check, to businesses you know are reputable. Never provide checking or credit card information, Social Security numbers or other personal information in response to an unsolicited call or e-mail, which could be fraudulent. For more information about Internet "phishing" scams in which thieves use fake Web sites and e-mails to mislead consumers into divulging valuable personal information, see the

Winter 2003/2004 issue of FDIC Consumer News at www.fdic.gov/consumers/consumer/ news/cnwin0304/phishing.html.

Be wary of offers to send money – perhaps to buy something you're selling or forward lottery winnings you've supposedly won – and you're asked to accept a cashier's check for more than the amount due and wire the "excess" money back. The cashier's check often will be counterfeit and you will be responsible for the money you wired to the con artist.

Take safety precautions with your checks, too. Don't carry more checks than you expect to use, keep extra checks in a secure place, and contact your bank immediately if any of your checks are lost or stolen.

And consider direct deposit of your paycheck and other checks you may receive, such as Social Security payments, as a way to prevent them from being lost, misplaced or stolen out of mailboxes. "Direct deposit isn't just safer than handling and mailing paper checks – it's also faster," says Kincaid. "In addition, some banks will reduce their checking account fees if you use direct deposit."

To learn more about how to defend against check fraud and other financial scams, see the Spring 2003 FDIC Consumer News special report on fraud at www.fdic.gov/consumers/consumer/news/cnspr03/index.html.

4. Periodically ask yourself, and your bank, if you're getting the best deal. If you think all checking accounts are pretty much alike, you'd better think again.

Your bank probably has several types of checking accounts with different features, fees, yields, minimum amounts to open an account, and other characteristics tailored to certain kinds of customers. And different banks offer different checking products. Checking accounts from the bank down the street or even on the Internet may be more to your liking.

How can you take advantage of this freedom of choice? "First sit down and evaluate your needs, perhaps with the help of a customer service representative at your bank," says Kincaid. Ask yourself: How many checks do I write each month? Do I plan to pay most of my bills without checks, perhaps by phone or over the Internet? Do I use an ATM or a debit card regularly? How much of a balance do I plan to routinely keep in the account?

Perform this kind of review every year or two. Perhaps you'll discover that your existing checking account is still right for you or that switching to a different account (at your bank or elsewhere) could save you money or bring you a better value.


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Last Updated 08/26/2004 communications@fdic.gov